The secrets of family businesses uncovered

The secrets of family businesses

by Jon Card

Updated: Sep 6, 2018 Published: Dec 10, 2007

There can be a passion and fervour in a family business which enables it to soar above the competition. However, these volatile qualities can also be the company’s undoing, as entrepreneurs behind these UK dynasties reveal here

Some of the UK’s strongest businesses have been in a blood line for generations. Sainsbury’s, for example, for many years the nation’s top seller. Sir Peter Vardy inherited his father Reg’s car dealership, later selling it for £504m. Haulier Eddie Stobart Ltd has just opted to list on the London Stock Exchange after around 40 years. The list goes on. But why are they so successful and why do some rise higher than others?

There’s a closeness and level of communication in a family business that cannot be found in other companies. This can be hugely beneficial, but family members can also fight with each other with more ferocity than they would with outsiders.

Arjun Varma knows a thing or two about that. Along with his brother Andy he runs a successful top-of-the-range restaurant, Vama, on London’s King’s Road, as well as a line in corporate catering and airline food. Arjun, who handles the business side, often clashes with his chef brother. “We have a bust-up once a week,” he says. “But it’s better to get it out, like a pressure cooker. People think we will never work together again, it gets so heated.”

But the brothers always return to business as usual. The fights are a part of a process which prevents either from gaining too much control. Arjun’s first aim is for the business to be profitable, whereas Andy is determined that his food is of the highest quality. It’s a tricky balance, but it’s essential to get it right.

Varma says the key is that they occupy different parts of the business. They can mostly work separately and enjoy the freedom of their own domain.

“Clearly defined roles are a must. Andy and I have completely different skill sets; there’s no way it would have worked if that wasn’t the case.”

Anne Plunkett, who runs hairdressing products business Trichocare with her husband Brian and son Nick, understands this situation. “Everyone wants to be the chief,” she says. “No-one wants to take instructions from someone else. This is why you all want to get your own categories.”

PECKING ORDER

Separating the family into areas is one issue, but interaction with other staff can be another. They might feel they are further up the pecking order than non-family, and some companies have been forced into the position of sacking a family member when things got out of control.

“If you get to the point of a disciplinary you’ve lost part of the battle,” says Stuart Laight, managing director of Aspray Transport. He says businesses should ensure that family members are only given tasks they are fully capable of doing.

Pay is another dicey issue. But families tend to be remarkably pragmatic about this. The notion of having an easy life “working for Daddy” is largely a myth, because Daddy still wants a profit and might just expect to get a better return out of his offspring. Entrepreneurs know they can’t afford favouritism as staff and clients would frown on it. As Laight says: “We pay the commercial rate for the job. My credibility depends on it.”

LOYALTY LIKE NO OTHER

But when you employ family members you already appreciate their strengths and weaknesses and typically you would bring them in to an area where you imagine they would succeed. It saves on recruitment consultants and interviews and it can be a rewarding decision for all the family. Stewart Yates of TFM Networks says that family can be a good way of solving a staffing problem.

“We bring members of the family in from time to time and I know I am can rely on what they do,” he says. Also, staff have a tendency to come and go and replacements are never easy to find. They take time to train and then leave. “Staff can just walk away after six months. There’s much longer security involved with a family member so you can be totally focused on what you want them to do in the business,” adds Varma.

FAMILY VALUES

Family businesses can possess a distinctive set of values and ideals that might be absent in other companies. James Perry runs £11m home-cookery business Cook with his brother Edward. Perry says his family’s christian beliefs have a significant bearing on his business. The company has two boards, one for management and the other for family. The first, headed by Edward, is responsible for running the business, the second reviews what management does. James, who describes himself as a strategist, uses the family board as a place to unleash his vision.

“This transformed my relationship with my brother,” says Perry. “We felt we were wearing different hats when we were speaking to each other. Now I run the shareholders and he runs the management.”

New family businesses often don’t have a formal structure or anything like a shareholders’ agreement. This can mean problems later as individual interests change and values differ. Adam Walker, of law firm Farrer & Co., says families often employ him to help establish constitutions. These documents spell out the aims, ideas and functions of the company, and can remove any tensions. Walker also says it’s not uncommon for a lawyer to take on the role of non-executive director, helping to broker negotiations and even sometimes having the final vote. “It’s all about keeping the business interests on track and not allowing them to be harmed by family differences,” he says.

Bringing an independent outsider – lawyer, accountant or other businessperson – into the business can be very beneficial. Many successful family businesses also have outsiders who hold the family’s confidence.

MOVING ON

Family succession in business is still a reality. Joanna Gardiner is now managing director of Ovelle, the pharmaceuticals business founded by her grandfather in the 1930s. She bought out her own father with the help of an outside investor. “I decided to bring in an outside investor so that my father could exit and I could take over the day-to-day running of the business,” she says. An exit story many entrepreneurs will envy.